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Evolving Issues and Future Directions in GST Reform in India

Author

Listed:
  • M. Govinda Rao

    (Executive Council Member, Madras School of Economics)

Abstract

The Goods and Services Tax (GST) was implemented in July 2017 to simplify the domestic consumption tax system by unifying various taxes, to minimise cascading effects of the taxes by setting off the tax paid at earlier stages of the production and distribution chain and to enhance revenue productivity by introducing self-policing embedded in the value added tax. However, the potential gains from the reform are yet to materialise. The promised increase in revenue productivity is yet to be realised. The tax base remains narrow due to a large list of exemptions. The inability to stabilize the technology platform has not helped to improve compliance. The multiple rates have complicated the tax structure, created scope for misclassification, inverted rate structure, and disputes arising therefrom. The exclusion of petroleum products and electricity from the GST base has continued significant cascading from the excluded taxes. In addition, the agreement on compensating the States for the loss of revenue will come to an end in June 2022, even before stabilising the reform. The paper makes detailed recommendations on the future reform agenda on the GST to reap the potential benefits of the reform and suggests that the compensation scheme may be extended by three years with modifications and used as an incentive to the States to agree for undertaking the much needed reform.

Suggested Citation

  • M. Govinda Rao, 2022. "Evolving Issues and Future Directions in GST Reform in India," Working Papers 2022-221, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2022-221
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    File URL: https://www.mse.ac.in/wp-content/uploads/2022/08/Working-Paper-221.pdf
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    References listed on IDEAS

    as
    1. Keen, Michael & Lockwood, Ben, 2010. "The value added tax: Its causes and consequences," Journal of Development Economics, Elsevier, vol. 92(2), pages 138-151, July.
    2. M. Govinda Rao & R. Kavita Rao, 2005. "Trends and Issues in Tax Policy and Reform in India," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 2(1), pages 55-122.
    3. Keen, Michael & Mintz, Jack, 2004. "The optimal threshold for a value-added tax," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 559-576, March.
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    Cited by:

    1. Mukherjee, Sacchidananda, 2025. "How to Mitigate Revenue Uncertainty Related to Restructuring the GST Rate Structure?," Working Papers 25/429, National Institute of Public Finance and Policy.

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    Keywords

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    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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